Who’s Who? Sorting Out the e-Logistics Players Part 1: The Situation

Written By: Scott A. Elliff

Published: October 31 2002

Who’s Who's Who? Sorting Out the e-Logistics Players
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The fundamental promise of e-commerce is to empower the customer. In transportation,
logistics and other "behind the scenes" aspects of e-commerce, new services
and capabilities are beginning to fulfill this promise, not just for Fortune
500 companies but for small and medium firms and for those with specialized
requirements as well. These solutions range from "e-gistics" auctions
and marketplaces, through software and support tools available over the
Internet, including a whole new category of Internet Logistics Operators.

This
article outlines some of the latest developments in this fast-moving field,
and provides background and context to help companies better understand
the alternatives available to them today and identify which approaches
provide them the greatest value.

About
this note: This is a three-part note. Part One covers the current
situation with respect to transportation and logistics. Part Two discusses
traditional solutions. Part Three covers new solutions designed to address
today's changing e-commerce environment.

Introduction

Armed with just a mouse and a web browser, both businesses and consumers
can now access an almost unlimited choice of products and services, compare
prices and features on a real time basis, and execute transactions nearly
instantaneously. In many industries, this increased competition has helped
squeeze out inefficiencies, lowered prices, and in effect leveled the
playing field for the "little guys" - medium and small businesses and
individual consumers - who did not previously have the time or resources
to manually access the full potential of the marketplace. Now they can
use the Internet to more effectively "pick and choose" what best meets
their needs.

Making
purchases, whether clicking a book choice from Amazon or conducting an
auction for supplying industrial widgets, has been the focus of e-commerce
to date. What happens "behind the scenes" in processing orders, shipping
products, storing and moving inventory, and related activities is a mystery
to most of us - a mystery that comprises about $1 trillion in today's
economy, nearly 10% of Gross Domestic Product.

Sure,
you've sold it, but now you have to ship and deliver it. What services
and methodologies are available to help shippers meet these e-commerce
challenges?

Fortune
500 corporations have long employed a variety of approaches to help them
gain a competitive advantage in managing their supply chains and satisfying
customer needs. But many of the "traditional" approaches are expensive
and simply out of reach for most companies. What's new is that e-commerce
is bringing transportation and logistics services and capabilities that
are available to everyone - big and small - and are thus helping to fulfill
the real promise of e-commerce.

From
"e-gistics" auctions and marketplaces, through software and support tools
available over the Internet, and including a whole new category of Internet
Logistics Operators, this article profiles some of these exciting new
approaches and helps you identify which approaches might provide the greatest
value for you.

The
Situation

There are few better candidates for e-commerce than the arcane and traditional
industries of transportation and logistics services. Not only are they
a significant component of the economy, they are especially ripe for new
ways of doing business.

Transportation

Despite all the advertising and the everyday visibility of overnight package
delivery services, over 80% of America's freight is still shipped by truck.
At $500 billion, truck transportation is the largest single component
of overall logistics costs - and has all the characteristics that you'd
want if you were seeking to build a better mousetrap:

The
customer base is large and diverse, with over two million businesses
that ship products. While Fortune 500 companies are the biggest shippers,
of course, small and medium sized companies that may typically spend
say $1-10 million in transportation are a substantial share of the
overall market. For these shippers, e-commerce should help with the
often difficult task of finding trucking companies that can provide
both superior rates and consistently high quality.

The
supply market is extremely fragmented, with nearly 200,000 separate
trucking companies today, 95% of which have fewer than 25 trucks in
their fleet and serve limited areas of the country or specialized
market segments. Using e-commerce techniques should help both buyers
and sellers better find each other and set prices on a more competitive
basis.

By
some accounts, nearly 30% of the miles traveled by these trucks are
empty, not loaded with product on board but still incurring costs
for drivers, gas, and depreciation. Using e-commerce should allow
better matching of supply and demand in a way that more efficiently
fills available capacity and reduces total costs.

Pricing
for the transportation industry, with its long history of regulation,
still tends to be very complicated, with a variety of tariffs and
discounts that vary by distance, weight, type of product, level of
priority, need for specialty services such as unpacking or set up
at the destination, and related factors. For small companies shipping
products in less-than-truckload amounts, for example, pricing has
used a National Motor Freight Classification system that includes
over 10,000 different product codes and classifications - and has
spawned an entire industry devoted to auditing the compliance of shippers
with the system. Surely e-commerce can develop a simpler approach
to this whole process.

Logistics

As many consumer dot-coms learned last Christmas, and as many business-to-business
shippers are learning every day, getting orders is only the beginning.
Fulfilling them - quickly, completely, accurately, reliably, and efficiently
- is the key to ongoing success. E-commerce has tremendous potential for
this full range of logistics related activities - warehousing, inventory
management, picking and assembling orders, and so forth:

In
industry and after industry, studies have shown that there are significant
levels of total inventory in the overall supply chain. While these
"buffer stocks" help ensure that stores and factories and other customers
have products when they need them, they also represent a cost that
everyone pays. The overall cost of storing, financing, handling, and
insuring inventory represents about $400 billion today. E-commerce
can no doubt play a role in increasing the efficient use of inventories
and driving them down to lower levels.

Warehouses
and distribution centers comprise literally billions of square feet
of space today. What's more, it's a growing industry. First, more
and more products are being produced and held in anticipation of that
happy day when the consumer or the business buyer clicks on the "Submit
Order" button,. Second the size of those orders and shipments is decreasing,
leading to more and more total activity and resources needed to handle
all those individual orders. As with transportation, e-commerce should
especially be able to help small and medium sized businesses to develop
relationships with the diverse set of warehouse providers that they
need to handle their products for customers all across the country.

This
concludes Part One of a three-part article e-Logistics. Part Two discusses
the traditional solutions and how they work in today's environment.
Part Three covers new solutions made possible by e-commerce.